Brad Eylander Econ Mid-Term Redo 2.

In a capitalist economy: My answer: A- resources owned by state, not federal gov't. This answer is wrong because it's more along the lines of communism rather then a capitalist society. A capitalist economy is a free-market economy people decide for themselves which careers to pursue and which products to purchase. None of the option described this, so the answer would be E – None of the above is true. 3. Christ 1-hour break... [has 2 options he can choose], economically speaking, this is... My answer: B- not an economic problem, because it's an hour that is wasted no matter what Chris does. This is incorrect because Chris does have an option how to spend his time, and in his option whatever he chooses is going to add to the economy; whether he wants to study or work-out. And with his choice he has to make a choice because Chris must do something in that time. The answer would then be D – an economic problem, because the 1-hour time limit means Chris must make a choice. 6. To aggregate...[a bunch of stuff]... economists add together the ______ of the three products. My answer: C – physical volume. This is incorrect because when economists aggregate they measure the value or the dollar value of all the items worth. The correct answer is B – dollar value. 14. If two countries are identical except [that one has air and water pollution], then the level of GDP: My answer: B – will be higher in the country with no pollution. This is incorrect because the question said that both countries are identical, therefore, both GDP would be the same. Air pollution and water pollution does matter in an economy, but since the countries are identical the GDP has no affect on air and water pollution. Therefore, the answer is C -will be the same in both countries. 15. Which of the following is an intermediate good and, therefore, would be excluded from the calculation of GDP? My answer: E – a pre-owned automobile. The correct answer was B – A set of tires purchased by Ford to install on a new Explorer. B is the correct answer because when calculating the GDP the Explorer would be added, but not the tires that were purchased for them. The tires were bought for the Explorer and since the tires were used in the Explorer, they aren't counted as the GDP. 17. Assume an economy produces only hamburgers and hotdogs and the base year is 2005. Hamburger: quantities 2005: 2000 2006: 3000; Prices 2005: $2 2006: $3 Hotdogs: quantities 2005: 3000 2006: 4000; Prices 2005: $1 2006: $1.50 What is the value of the real GDP in 2006? My answer: B - $7000. the correct answer is --> quantity in 2006 * prices in 2005 for hamburger and hotdog --> $3000 * 2 + $4000 * 1 = $10,000. This adds up to C - $10,000. 26. If both the lender and borrower agree on an 8% interest rate, both expect a 4% inflation rate, and inflation turns out to be 4%, then _____ by the inflation. My answer: A – the borrower is hurt and the lender gains. The correct answer is C – neither the borrower nor the lender are hurt. C is correct because both the borrower and the lender expected 4% inflation and there was a 4% inflation. Therefore, none of them have a better deal on the other because both had equal expectation and had the interest rate both agreed on.

31. If the price is above the equilibrium value, then My answer: A – producers will hope that buyers want more in the future. However, C – producers find their inventories growing and will start to cut the price -, is the correct answer because if the price of a good is above the equilibrium value, then not as many people will buy. If people wont buy inventories will grow and the company will need to cut the price in order for people to buy. 35. Regulation in the labor market is not necessarily undesirable, but should be subject to the: My answer: B – scarcity principle. The correct answer is C – cost-benefit principle. It's the cost-benefit principle because it shows what people are willing to pay for as long as the benefit is worth the extra cost. So the regulation is worth the extra cost in the labor market, therefore, showing that it's subject to the cost-benefit principle. 36. Compared to the US, minimum wages are ____ and unemployment benefits _____ in Western Europe. My answer: E – lower; more generous. Re-thinking when I was looking up unemployment in different countries, I noticed that Wester Europe had lower unemployment then the US. The reason for this is because the minimum wages in Western Europe are higher, therefore, encouraging more people to get jobs; and following the downside to Western Europe's unemployment is that the unemployment benefits are higher. The answer is C – higher; more generous. 40. Unemployment insurance contributes to structural unemployment by: My answer: B – keeping wages below the market-clearing level. This is incorrect because unemployment insurance pays people while they're looking for a job. This encourages people to look less intently for jobs and making the process to find the job long. The correct answer is then, C – allowing unemployment workers to search longer or less intensively for jobs.

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